KISHINCHAND CHELLARAM COLLEGE Page 2
nderstanding and measuring liquidity of government bond markets isimportant to various market participants. Primarily, these markets serve togovernments for financing purposes. Market participants use governmentbonds as collateral, as benchmarks for pricing other financial instrumentsand as hedging or investment instruments. Central banks extract fromthese markets information on future interest rates and use governmentbonds as a monetary policy instrument. Liquidity directly affects theusability of government bonds for these purposes.
ntil recently, most research articles focused on stock or foreign exchangemarkets and only few were dedicated to government bond markets.Researchers and regulators started to focus on the liquidity of governmentbond markets after the financial market turmoil in 1998, which had animpact even on such liquid markets like the
. S. Treasury market.Through the efforts of this project, we understood in depth the variousinstruments used by individuals as well as by organizations for raising andusing debt. Earlier we were under the impression that we have limitedinstruments and limited scope to the debt markets but after this study, weare aware of the various opportunities in the debt instrument market